How to Choose an ERP System

How to Choose an ERP System

AUGUST 15, 2017 BY GEIR TONNESSEN & HUDSON JUNGCK

AUGUST 15, 2017 BY GEIR TONNESSEN & HUDSON JUNGCK

So you’ve decided that your organization needs a new ERP system. What now? Where do you start? Everybody’s heard the cautionary tales, seemingly healthy companies that bellied up under the wrong system. Simplistic claims abound, obscuring nuance and the truth.

You’re not sure whom to ask the most basic questions. What is a cloud solution? What are the reasons to prefer cloud over on-premise? Where does hybrid ERP fit into the picture? The last thing you want is another fuzzy self-promotion, another claim to market supremacy.

In this post, we will lay out twelve steps that we have seen work for multiple organizations, whether or not they chose us as their provider.

Stage 1: Resolve Not to Base Your Decision On:

A. Hype
Before you start searching, before you formalize a search process, before anything else, resolve one thing: that you will not buy an ERP system sight unseen.

Many organizations purchase ERP systems on the basis of prototype features and appealing presentations, only to find that what they get is vastly different from what the provider showed them. Make sure that what you see in the demo is what you get after signing. And don’t take sales claims at face value; words like ‘cloud,’ ‘hybrid,’ and ‘on-premise’ can stretch to accommodate many meanings.

B. Shortsightedness
Unfortunately, many organizations make an ERP selection on the sole basis of their current standing. Keep one eye on where you are, but fix another on where you could be. Consider how far your organization is willing to go for greater automation or a streamlined workflow. Factor ambitions for growth into Stages Two and Three.

C. Incomplete Cost Analysis
Many ERP buyers fail to account for the magnitude of costs—and cost differentials—in the ERP market. If you choose on-premise or hybrid ERP, you will pay for hardware, for a license (now and with each upgrade), for maintenance, for consulting, and for all the staff and equipment required to host and secure the software. Depending on your provider, you will likely also have to pay for costly customization.

By contrast, Cloud ERP typically involves a one-time implementation cost and an ongoing software-as-a-service (SaaS) subscription fee.

D. Market Share
Even amid accelerating cloud migration, the market leaders remain on-premise providers who can, for now at least, rely on existing customers and brand recognition. Adopting SAP or Blackbaud strikes many risk-averse CFOs as a safe bet. But this fixation on job security can have devastating impacts for companies and non-profits ill-suited to the burdens, costs, taxing implementation, and almost immediate obsolescence of an on-premise solution.

The right ERP system should present a value proposal so compelling that its implementation will ensure both the organization’s future and the job security of its champions. Balance considerations of market share with customer retention rates, long-term growth, functional advantages, pricing schedule, and ease of upgrade.

Businessman working with Xledger's cloud ERP system

Stage 2: Reach a Consensus on Your Organization’s Pain-Points

Even if the entire C-Suite cannot agree on the nature of an organization’s problems, they should at least agree that problems exist. If nobody else sees anything wrong, you will face a long and uphill battle to successful purchase.

Ask questions like the following: What is holding us back? Are our employees less productive as a result of our current system? Could automation cut costs or streamline processes? Do we rely on manual processes and spreadsheets? Where do we observe inefficiencies?

It is imperative to have this conversation before formalizing, let alone conducting, an ERP search. Do not prioritize software with vendors; discuss your needs first, then determine the software that satisfies them.

Stage 3: Codify a Structured Process and Selection Criteria

To a large extent, this will depend on the strength of the consensus you secured in Step Two. If your C-Suite remains resistant to the notion of a new ERP system, you might consider a more informal and self-directed ERP search process. If, on the other hand, you feel the entirety of your C-Suite behind you, then you can safely establish a formal process.

Based on our experience with customers, we strongly suggest formalizing your search if at all possible. Companies with structured searches outperform those who leave the process informal.

By structuring your process, we mean something like the following:

First, based on the pain-points you affirmed in Stage Two, gather and document your organization’s requirements. In order to maximize objectivity, confirm criteria, establish a scoring system, and reach agreement on formats for demos and sales presentations. Include as many relevant stakeholders and impacted parties as feasible. However, take care lest you grant undue influence to an individual or group.

Second, draw on existing leaders and recognized SMEs to form a selection committee. Aim to include delegates from all affected divisions—from C-Suite to sales, finance and technology, marketing and operations—recognizing that more effective representation enriches both the quality of the process and the consensus behind its result.

Stage 4: Take Stock of Technological Processes—Yours and the Market’s

The ERP market of today shares precious little with the markets of five or ten years ago. If your search criteria include items like long-lasting, durable, or a sound investment, then you should take the time to comprehend emergent technologies and how they will impact your business. For instance, on-premise and hybrid systems demand cost-intensive customizations to fold their software around your business’s needs.

Technological leaps now allow many cloud providers to configure a single software instance to the needs of multiple tenants. An inventory of your organization in light of technological advances will in turn cast light on every subsequent stage of the search process. If you plan to expand in size, know how scalable technologies have factored into the ERP market.

Stage 5: Decide Which Platform Makes Sense

Today’s ERP market is highly nuanced, which means that words like ‘Cloud’ and ‘On-Premise,’ while valuable, can be misleading. In the wide space between Cloud and On-Premise lie numerous ‘Hybrid’ solutions, attempts to streamline on- and off-premise technology.

‘Cloud’ itself fans out into numerous meanings, from private to public and partial to full. Many on-premise providers attempt to pass off minimally hybrid solutions as cloud, while some cloud providers have snuck in offline modules and software licenses.

Remember cost—for the software ownership that an on-premise provider gives, you will end up paying far more than the sales rep’s quoted price: for customization, maintenance, consulting, training of your staff, and tech hiring, just to name a few. You will also own the bugs and problems in the provider’s software. And every upgrade will bring with it new licensing and customization costs.

Stage 6: Learn the Alphabet Soup

Once you have decided on a platform, learn the acronyms and shorthand references that populate industry marketing. This knowledge will aid you in sifting platforms and identifying hazards.

If a provider positively frames acronyms like CAL (Client Access License), MBL (Module Based Licensing), RAD (Rapid Application Development), or EDI (Electronic Data Interchange), then they’re almost certainly not cloud.

On the other hand, on-premise providers almost never promote acronyms like ACH (Automated Clearing House), RDC (Remote Deposit Capture), DD or DT (Drill-Down or Drill-Through), or XBRL (Extensible Business Reporting Language). 

Looking up at a reflective skyscraper from ground level

Stage 7: Research Providers on Your Chosen Platform

Devote considerable time to identifying and comparing providers on your platform. Search for warranted claims and compile contrasts between prices, customer retention rates, features, and update schedules. Watch for pretense and surreptitious platform mixing. Find out whether the provider charges licensing fees for individual modules or new versions. How long will your organization be fully or partially handicapped during system implementation?

Sales representatives should express eagerness to give system demos and details. If they don’t, don’t bother. This stage is your chance to question anything and everyone: how much will we save? How soon? Will the marginal shift in revenues and operating costs defray our investment? Which provider offers a true competitive advantage?

Stage 8: Create a Longlist

Take all of the providers that meet your rough criteria and organize them into a longlist of between fifteen and thirty. Aim here for quantity before quality. If a solution lives on the platform you prefer, and if no neon warning signs have so far presented themselves, include it.

Stage 9: Bring in a Selection Committee

Take this opportunity to return to whatever selection committee you identified in Stage Two (the C-Suite, a pre-defined project group, a management team, etc.). Once you have a shortlist, and ideally once you have double-checked and eliminated several more options, you can present your findings to a selection committee. As you move from longlist to shortlist to choice, make certain that each committee member understands and complies with the tapering process: new search criteria should never pop up in the longlist, and by the top three, you should have long since finished your list of possible providers.

Stage 10: Collaborate to Create a Shortlist

By now you should have selected a platform, become familiar with industry lingo, involved a committee, and compiled a longlist of providers. For your next step, raise standards. Draw the criteria for elimination from your written requirements. Frequently consult the documents you created in Steps Two and Three. Along with your committee, aim for a shortlist of ten options.

The more you can eliminate here, the less time the final decision stages will require. Schedule sales demos and product presentations as often as necessary.

Businessmen and women meeting in a conference room

Stage 11: Choose from the Top Three

Compress your shortlist to three providers. Review your criteria, embrace lively dialogue among the members of your search committee, and draw discussion down to a final choice. Recognize that at this stage, dynamism, intensity, and even healthy conflict all indicate high levels of personal investment and commitment to the process.

Stage 12: Stay Vigilant

Even after you have selected an ERP provider, remain alert. In a highly marketed industry, vagaries like ‘hybrid’ and ‘cloud’ can fool any but the sharpest observers. By this point, you should have already considered such factors as updating and implementation down-time. However, always remember that it’s never a done deal until the ink dries on the signature line.

As you work through these twelve stages, take care to avoid the extremes of self-defeating rigidity on the one hand and a baggy, chaotic process on the other. You might find the perfect system in Stage 9 or need to add a selection criterion in Stage 5. Don’t suppress such developments. But do your best to make each stage as comprehensive as possible, no matter how long it takes. Rushing through the selection process is a sure path to quarrelsome indecision or outright disaster.

Four to six months might work for one company, while one in a different industry or tax filing status might need six to eight, or eight to twelve. Whatever your organization chooses should last for years to come; take the time to do it right.

To learn more about Xledger, the most automated ERP solution on the market, contact us for a product demonstration tailored to your needs.

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